Can ESOPS Be a Great Answer for Founders & Companies? 7-9-26

Summary

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Podcast Summary: Becker Private Equity & Business Podcast

Episode Title: Can ESOPS Be a Great Answer for Founders & Companies?

Date: July 9, 2026
Host: Scott Becker
Guest: Tom Mallon, CEO & Founder, Perpetuate Capital

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Episode Overview

This episode of the Becker Private Equity & Business Podcast, hosted by Scott Becker, features Tom Mallon, CEO and founder of Perpetuate Capital. The discussion centers on whether Employee Stock Ownership Plans (ESOPs) are a viable, and potentially superior, option for founders and privately held companies considering a sale or ownership transition. With the backdrop of an impending “silver tsunami” — the mass retirement of Baby Boomer business owners — the episode delivers expert insights on ESOP financials, strategic considerations, cultural impact, and real-world outcomes.

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Key Discussion Points & Insights

1. Introduction to Tom Mallon & ESOP Advisory

• Tom Mallon introduces his background as a Harvard Business School graduate, founder of Regent Surgical Health, and managing partner at Perpetuate Capital, focusing on transition consulting and ESOP feasibility studies.
  • “We do consulting for companies that are in transition... and feasibility studies... whether they should go to private equity, a strategic partner, or an ESOP.” — Tom Mallon (02:30)

2. The “Silver Tsunami” and Business Owner Transitions

• The scale of the upcoming transition is massive, with nearly $10 trillion of middle and lower-middle market business value owned by Baby Boomers.
  • “$10 trillion. That's the value of the middle and lower middle market companies owned by baby boomers." — Tom Mallon (04:25)
• Owners fall into “warm hands” (proactive planning) and “cold hands” (no plans until death or incapacity); the latter creates significant risk for employees, customers, and heirs.

3. ESOPs vs. Private Equity or Strategic Buyer Sales

• Perceived wisdom suggests ESOPs may yield lower financial returns than private equity or strategic sales, but Tom disputes this:
  • “The ESOP has to pay market value for your company... The ESOP is basically targeting off the private equity price.” — Tom Mallon (06:37)
• Some strategic buyers pay more due to post-deal cost-cutting, but ESOPs offer unique tax advantages (especially Section 1042 rollover), sometimes making net proceeds higher for the seller.

4. Day-One Experience: Private Equity vs. ESOP

• Selling to private equity often removes founder’s control:
  • “If [private equity] bought 51% or more, they might as well own 100% because they call all of the shots... They’re going to make all the decisions.” — Tom Mallon (08:27)
• In contrast, ESOPs maintain company culture, existing board, and practices while benefiting employees through share allocations:
  • “The board then keeps everything the same. If the company is doing philanthropy in the community... they just continue operating the business as it has been.” — Tom Mallon (10:18)

5. Transformative Impact on Employees

• Tom shares a powerful case study: After converting Regent Surgical Health to an ESOP, an unforeseen buyout delivered $40 million to 42 employees—turning several into millionaires and deeply impacting lives.
  • “Even the ladies who did billing and collection, who were single moms... got 400 to $600,000 in their IRA accounts from that transaction.” — Tom Mallon (13:43)
  • “Some of the emails I got from the staff — I still tear up when I read them because the appreciation... was enormous.” — Tom Mallon (14:34)

6. Section 1042 and Other ESOP Incentives

• Owners selling to ESOPs can roll proceeds into stocks/bonds, deferring capital gains tax potentially indefinitely (Section 1042).
  • “It can really put a huge advantage over a private equity deal where they have to pay capital gains...” — Tom Mallon (07:43)

7. Guidance for Business Owners Considering an ESOP

• Every business will eventually transition:
  • “All companies are going to transact. It's either warm hands or cold hands... The question is, what's your strategy?” — Tom Mallon (15:57)
• Recommends feasibility studies to compare ESOPs to other options, assisting owners in informed, strategic decisions.
  • “Our website... has a feasibility study button... [to see] what an ESOP transaction will look like financially... what the private equity transaction will look like... and a strategic analysis.” — Tom Mallon (16:23)

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Notable Quotes & Memorable Moments

• On the magnitude of the transition:
  “$10 trillion. That's the value of the middle and lower middle market companies owned by baby boomers.”
  — Tom Mallon [04:25]

• On employee transformation:
  “Even the ladies who did billing and collection, who were single moms... got 400 to $600,000 in their IRA accounts from that transaction.”
  — Tom Mallon [13:43]

• On control and continuity:
  “The board then keeps everything the same... they just continue operating the business as it has been.”
  — Tom Mallon [10:18]

• On inevitable transition:
  “All companies are going to transact. It's either warm hands or cold hands.”
  — Tom Mallon [15:57]

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Important Timestamps

• 02:30 — Tom Mallon’s Introduction & Perpetuate Capital’s ESOP focus
• 04:25 — “$10 trillion” value—magnitude of the Baby Boomer business transfer
• 06:37 — ESOP pricing vs. private equity; tax-deferral advantages
• 08:27 — Differences in company control: Private Equity vs. ESOP
• 11:47 — Life-changing impact of an ESOP on employees
• 13:43 — Stories of rank-and-file employees becoming financially secure
• 15:57 — Guidance and feasibility tools for owners on the fence about ESOPs

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Takeaways and Tone

The episode is expert-driven, pragmatic, and motivational, emphasizing practical options for business owners facing transition. Tom Mallon provides detailed explanations, personal anecdotes, and actionable advice, challenging common ESOP misconceptions and spotlighting how the right approach can yield both financial optimization and transformative cultural/employee impact. Listeners are encouraged to consider the full range of exit options early, arm themselves with facts via feasibility studies, and pursue solutions that align with their values beyond maximizing sale price.

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For additional resources:

• Perpetuate Capital’s ESOP feasibility tool (as referenced by Tom Mallon)

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Transcript

[A]

You know, this is one of those topics that no one really wants to think about. But if you're a parent, a homeowner, married or helping take care of aging parents, it's something that honestly deserves a little attention. I'm talking about estate planning. And before you tune out thinking it's complicated or expensive, that's actually why I want to mention trust and will. Trust and will makes estate planning feel way less intimidating than it sounds. They offer modern attorney designed wills and trusts that you can create online and and the process is surprisingly straightforward. In fact, you can create a will in as little as 30 minutes. That includes things like guardianship for your kids or pets, how your assets are distributed, and even healthcare directives. Don't wait until it's too late. Protect your loved ones with trust and will, the most trusted name in online estate planning. Go to trustandwill.com future to get 20% off. That's trustandwill.com futur for 20% off. Trustandwill.com F U T U R this

[B]

is Scott Becker with the Becker Business and the Becker Private Equity Podcast. Today's discussion centers with Tom Mallon, the CEO founder of Perpetuate Capital. And Tom is also Harvard Business School graduate and the founder of one of the largest surgery center chains in the country, Regent Surgical Health. Tom's going to talk to us here. Can ESOPs be a great answer for founders and companies? Thank you for listening to the Becker Business and the Becker Private Equity Podcast and to Tom Mellon for joining us. Tom, as we get started, let me ask you to take one moment to introduce yourself. You're the managing partner of Perpetuate Capital. You are focused today on ESOP transactions and advisory. I've also had a chance to visit with you over the course of the last 25, 30 years, worked with you on a company that you founded called Regent Surgical Health. Built one of the most well known ambulatory surgery center companies in the country using esop there became very excited about the potential and the ability to use ESOPs for transactions and now are in the ESOP world yourself. It also Harvard Business School graduate, one of the brightest people I've and most ethical people I've ever had a chance to work with. Can you take a moment and an introduction of yourself? Then we'll talk about the silver tsunami, retiring business owners and a lot more.

[C]

Tom thank you Scott for allowing me to participate and it's my pleasure and privilege to be here. I am a General partner of Perpetuate Capital. We do two things we do consulting for companies that are in transition. And we will do feasibility studies for them to determine whether they should go to structure, they should go to a strategic partner, they should go to private equity, or they should go to an esop. And those feasibility studies are kind of the beginning part of the analysis to help give them a direction on which option they should pursue. We will then, if they choose to do an esop, we will go to we will consult with them through the entire process, make recommendations on advisors. And it's about a three to six month process. So it's not a simple thing, but it's like golf. It's simple, but it's not easy as you give us your golf analogies and your daily reports. SCOTT

[B]

well, my golf is a real struggle, so I hope that there's better answers on the ESOP side than on my golf side. It is a constant challenge. TOM I'm going to ask you five questions. We'll start with everybody's talking about the silver tsunami of retiring business owners. They talk about this incredible both wealth transfer and also just the amount of businesses that were founder led, almost mom and pop businesses. Many have grown into very large businesses. What's a number that people aren't paying attention to when you look at this tsunami of change?

[C]

$10 trillion. That's the value of the middle and lower middle market companies owned by baby boomers. And they're all going to transact either warm hands or cold hands. Warm hands. They're alive. They're figuring it out. That's about 40% of the owners, 60% of the owners are basically cold hands owners. They're going to be there until they die or until they go into the home. And those are the people that really have a problem. Their employees have a problem, their customers have a problem. And they're the ones that we need to shake up and wake up to the situation that they're in.

[B]

Thank you. That's a fascinating stat because quite frankly, if you have a company, particularly a privately held company, it depends on the size and structure of that company. But if you leave that for your children who are not involved in the business, or even if they are involved in the business and haven't figured out what to do with it, you could really leave the next generation, whoever's left, with horrendous challenges and problems. If you haven't solve for this up front or at least thought about the transition and what you're going to do, that is correct.

[C]

And it's it's you're not doing your family Your employees, your customers any favors by by not planning for a transition while you still have warm hands.

[B]

Thank you so much. There's a perception out there that when you do an ESOP transaction that you might be leaving money on the table that you could make more money by selling to a private equity driven buyer, a financial buyer, maybe a strategic buyer. Talk about that. Is that a fair perception? Are there spots where ESOPs can deliver the same results or better financial results than a private equity or strategic buyer? What have you seen? I know you did an AESOP deal and then a private equity deal with one of the companies that you founded and give us a little bit of the economics of ESOPs versus the other alternatives.

[C]

Your question is is a misconception by most people. The ESOP has to pay market value for your company. Market value would be determined pretty much by a private equity firm or a strategic. Certain strategics are willing to pay a lot more for your company than than private equity will because they're going to take a third of your employees and fire them. They're going to do away with any kind of community support or philanthropy that you've got. Any dollar that doesn't go back into the company or into their pockets, that's what they will eliminate. So they can afford sometimes to pay more than a private equity firm. But the ESOP is basically targeting off the private equity price. We had an offer for our company and the ESOP matched it. What the ESOP will do though is it will allow the seller to roll their proceeds into stocks and bonds of US Companies and delay until their death any capital gain tax. And if they hold those assets until their death, the capital gains goes. So that's one of the big things that people look at when they consider an esop. And it can really put a huge advantage over a private equity deal where they have to pay capital gains and

[B]

take a second on the private equity deal. So many deals the last 10 years have been done through private equity. When an owner sells to private equity, what changes for them on day one? And how is an ESOP different on day one?

[C]

That's a great question. Day one, the private equity company owns your business. If they bought 51% or more, they might as well own 100% because they call all of the shots. You may have rolled over 20, 30% of your equity. You may have an earn out on the deal, but they're going to make all the decisions. So ultimately, if you don't agree with their decisions, you either leave and then fight over the the earn out and the, the residual equity or, you know, it's just, it's not a simple solution for the esop. There is a trustee involved. An ESOP fundamentally is a trust established for the benefit of the employees that they get the benefit from, but they don't own any stock. A trustee is in place to represent the employees on distributions of shares over time. As the employees earn those shares, the trustee basically hires a financial advisor to give an annual valuation of the business. But the employees never run the company. The company is run by the board that hires the trustee, and the trustee hires the board so they have a mutual interest in working together. And the trustee never wants to run the company, and the employees never get to run the company. The board continues to run the company while the ESOP is in place.

[B]

Thank you very, very much to finish answering your question.

[C]

I'm sorry. The board then keeps everything the same. If the company is doing philanthropy in the community, if the board, if the company has a certain mission that they're committed to, certain customers they're committed to, they just continue operating the business as it has been.

[B]

Thanks. You literally have a capital event, a financial event, but very little change, the actual running of the business day in, day out. And it's why some of the most famous companies in America have been ESOPs over the years, struggle to maintain the culture, maintain the company, and at the same time take care of some of the financial needs you might have to take care of with some retiring owners or shareholders and families and so and so forth. You had mentioned a stat earlier that when you did an ESOP transaction, you were able to help turn and, and you'll remind me of the number several of the rank and file employees into millionaires, some of the billing clerks into people worth half a million dollars or more. Take one second on that and then, then I'll ask you to tie that into a separate discussion, which is this section 1042. And what does that mean? But first give us the story of how well some of the rank and file poise did with your ESOP transaction and the growth of your company.

[C]

We decided in 2000, end of 2016 to convert our region surgical health surgery business to an ESOP. We had 24 centers. We had like four under construction. And the 14 original owners of the company basically got 80, 75% of the capital out of the business with investors and the commercial bank providing that capital. And then they rolled 25% into the company over the next four and a half years. The company was, because the company becomes a qualified Pension plan, just like your ira, it doesn't pay federal income tax. Due to that strong cash flow the company had, we were able to pay off a seven year loan to our senior lender. We paid it off in two and a half years and then Covid hit and we got an unsolicited offer from a large health system. Many people think that an ESOP is a once and done thing. There are as many ESOPs being bought out of the ESOP structure every year as new companies going into the ESOP structure. There's about 7,000 ESOP companies in the country. Everything from small $2 million EBITDA companies to Publix, which is, you know, the, the largest ESOP in America. Publix grocery stores. Because of the, of the, of the offer that was unsolicited, we had a valuation done that year that valued us at about 50% higher than what we did the ESOP at four years earlier. However, the offer from the, the large Catholic health system was 400 times what we did the deal at four and a half years earlier. The board looked at the management team and they said, we don't care, we're doing great, we'll continue to operate the business, but if you want us to do this, we'll do it. And we ended up closing in March of 2021. And in that closing, the, the employees split. $40 million. 42 employees. And we had, we had 13 of them got multi, multimillion dollar payouts. But even the ladies who did billing and collection, who were single moms, they were, you know, they've been with us for years. They got 400 to $600,000 in their IRA accounts from that transaction. And some of the emails I got from the staff, I still tear up when I read them because the appreciation of what we did for them was enormous.

[B]

Tom, I watched it firsthand. Fantastic to watch. Just a great blessing, I guess. One last question. If you're an owner and you're listening to this or watching this, you're, you know, pick a certain age, I hate to say these ages because I'm getting awfully close to them and lots of people are there. But whatever the age is, you're, you're no longer your 30s and 40s, you're a little bit more senior as a business owner and you're on the fence. What's the one thing you might tell them about an esop, you know, some of which people might not be that familiar with because it's not pretty, it's not been as used a vehicle. The Last decade as it was, it seems like a couple decades ago. But you do have things like Publix, you had Snyder Electric, you've had some great, great companies that have ESOPs. I saw you use it magnificently well with Regent Surgical Health, which is one of the largest surgery center chains in the country today. What's one thing you would tell people about ESOPs? If they're on the fence? Not sure about this as a strategy

[C]

all, all companies are going to transact. It's either warm hands or cold hands. It's just, it's a fact of life. The question is, what's your strategy? What do you want to accomplish with that transaction? And our website, perpetuatecapital.com has a feasibility study button in it and if you'd like, I can copy that into the chat or into the questions and people can click on that and they can put their data into it and see what, what a, what a, what a, an ESOP transaction will look like financially with all the cash and the tax savings, what the private equity transaction will look like with all the holdbacks and paying taxes and a strategic analysis. And that way people, they can then make a somewhat more informed decision about at least which direction they want to put their emphasis in. We looked at all three. That's an expensive way to do it, but if you can eliminate one or two of them initially and just go down one road, it's a lot more efficient and a lot more cost effective.

[B]

Tom, I want to thank you. It's always brilliant to get to visit with you, one of the smartest business people I've heard a chance to visit with. Also one of the most ethical and highest integrity, Tom Malin. It's been my pleasure over the course of our career to work with Tom for really closely on a number of different areas and as good a person as they come. Thank you for listening to the Becker business and the Becker Private Equity Business Leadership Summit. Again, thank you to each of our sponsors. McGuire woods, perpetuate capital, Thinkspan Priority Search Management Range product partners, Bearden Warner and Elevate Talent Advisors. Thank you very much.

[D]

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[E]

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